Hugh Johnson sees recovery gaining steam in 2010

Consumer spending is likely to outpace economists’ consensus estimates as households shed debt more quickly than expected, Hugh Johnson said at this morning’s meeting of the Albany-Colonie Regional Chamber of Commerce at the Hilton Garden Inn in Troy.

“There’s been a surprise,” the chief investment officer for Albany-based Johnson Illington Advisors told the crowd. “The deleveraging process is happening much more quickly than anyone expected.”

While some of the debt has been shed through foreclosures, consumers have also seen gains in their assets as equity markets have bounced back.

“Consumer wealth — net worth — increased in the second and third quarter by $5 trillion,” Johnson said. This will help make the recovery stronger than expected.

Johnson was delivering his annual economic forecast to the chamber, and it was an upbeat outlook.

He predicted the Federal Reserve this afternoon will say it plans to keep interest rates low for an extended period of time, although they will start to rise at some point.

The low short-term rates are helping banks restore their financial health, as they borrow money at low rates and then buy longer-term Treasuries paying a higher rate.

“Banks are taking advantage of the steep yield curve,” he said. “That’s a good strategy because it will (improve) the financial strength of banks.”

And as they grow stronger, he expects they will start lending again. Tight credit has been a factor cited by economists as a problem facing many small and mid-size businesses.

Other forecasts:

“The dollar is likely to stabilize and improve. That in turn will attract international capital flows back to our equity markets,” Johnson said.

Investors will see a total return of 5 to 8 percent in the stock market during 2010, “which is still not bad,” Johnson said. “The bull market is nine months old. There’s never been a bull market that lasted just nine months. The average duration is 43 months,” Johnson said.

Job growth will resume in 2010, although at first it will be anemic. Johnson sees 20,000 jobs added per month in the first quarter, expanding to 150,000 jobs per month by the fourth quarter. In all, he expects 1.2 million jobs to be created in 2010, although that’s still far short of the 7.3 million jobs lost in this recession.

New York state outperformed the national economy “by a lot” in the recession, but its recovery will lag that of the nation. While the employment picture will be “lousy” downstate, the Capital Region should see the jobless rate come down during 2010, Johnson predicted.

Eric Anderson

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Johnson paints a pretty picture, but makes no mention of the debt load the administration is adding to the economy for TARP, Stimulus, Health Care and thousands of new government bureaucrats. $13 TRILLION that will cost twice the GDP to service (pay off) in twenty years IF it does not trigger hyper-inflation first. And that’s the rub with having the government try to restart a stalled economy by madly spending borrowed money. The more money is printed, the less it’s worth.

FDR used the same tactic to ‘fix’ the Great Depression, only to have the economy respond to the spending and dilution of the nation’s money supply by suffering a deeper drop than occurred in ’29, four years later.

Lest we forget, that brought on eight years of malaise which ended only when WWII was able to stimulate the American manufacturing sector to produce the tools of war needed to beat the Axis powers.

In contrast today, the manufacturing that was able to pull us out of the Depression has been outsourced and our potential enemies hold more than half of the debt that Congress and the President have been so quick to authorize. A financial disaster that will make the Great Depression look like a walk in the park will grip our nation (and any other country that pegged their hopes to the Almighty Dollar) when (not IF, but WHEN) the Chinese, Arabs/Muslims and/or Russians call their markers.

The next crash will come and without the ability to produce our way back, the next conflict may be about how to divide our assets.

After the Chinese, oil producers and others own the US of A and have no use for the people of their new holdings, what will become of us?